Wesfarmers splits Coles
COLES supermarkets and liquor stores are to be put into a new $20 billion company and listed on the Australian Securities Exchange.
The move by owner Wesfarmers will help distance the parent company from the slower growth forecast for the low-profit and highly competitive supermarket sector.
The new company will include more than 800 Coles supermarkets, almost 900 liquor stores, 88 hotels and 712 Coles Express stores. It will be one of the top 30 companies listed on the ASX, with almost 110,000 workers and 2500 stores.
Wesfarmers, which owns several other major retailers, plans to retain a 20 per cent shareholding in Coles. The remaining 80 per cent will given to all existing Wesfarmers shareholders, who can sell their shares after the company begins trading on the ASX.
The spin-off of the supermarket business from Wesfarmers is expected to be complete in the next financial year. The deal requires shareholder approval.
“A demerger of Coles will facilitate greater focus by Wesfarmers on growth opportunities within its remaining businesses,” Wesfarmers managing director Rob Scott said.
Wesfarmers has about 60 per cent of its money tied up in Coles, which makes just one-third of the group’s profits.
The decision to put Coles into a separate company would allow Wesfarmers to achieve a higher profit compared with the amount of money and capital invested.
Wesfarmers also owns Bunnings, Target, Kmart, Officeworks and various other resources, agricultural and chemical operations.
Wesfarmers purchased struggling Coles in 2007 in a bulk deal which included Kmart, Target and Officeworks, for a combined $19 billion. Over the last decade it has spent about $8 billion trying to upgrade the supermarket and liquor operations.
Wesfarmers has not given an estimate for the value of the new company, however analysts put it at about $20 billion.
“The Wesfarmers-Coles split is a classic case of a demerger making sense,” said Melbourne Business School spokesman Robyn Rodier.
“Coles is clearly not performing as well as hoped and the Wesfarmers board and management feel that the timing is right. The separation will allow a stronger focus on each entity’s core business.”